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Overview:

Federal Student Aid (FSA) provides financial assistance to students pursuing all types of education subsequent to high school, from vocational school to graduate school. Most students receive assistance in the form of loans to be repaid after completion of education. These loans are either direct from the federal government or federally guaranteed private loans. The FSA also has grant programs, with eligibility based on financial need, and work-study programs in which it pays part of the wages of student workers. Students can apply for any FSA program through the consolidated Free Application for Federal Student Aid available on-line. In FY 2011, the FSA processed 21 million such applications and assisted more than 15 million students.

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History:

The nation’s first student aid program was launched at Harvard University in 1840, which was 27 years before the creation of the U.S. Department of Education. The first state financial aid association came into being in 1935, followed by numerous fellowship and scholarship programs through universities, organizations and the government.

 

Although federal assistance for higher education began with the GI Bill of 1944, the federal government started making financial assistance available to large numbers of students after the passage of the Higher Education Act of 1965 (pdf). The National Student Financial Aid Council was created in 1966 and, in 1972, Congress replaced the term “higher education” with “post-secondary education” as it expanded financial aid to students in vocational education, community colleges, trade schools, and part-time students as well as students in traditional four-year degree programs.

 

Federal student aid programs were located in the now-defunct Department of Health, Education and Welfare until the creation of the Department of Education in 1980. In 1998, the Office of Federal Student Aid was created to consolidate student aid programs under one agency, to better monitor student aid recipients, educational institutions, and participating lenders.  

 

Student aid made a big leap from paper to electronic applications when FAFSA went online in 1997. A decade later, distribution of paper applications was discontinued. In 1998, the Middle Income Student Assistance Act was passed, which expanded federal student assistance programs to include middle-income students in addition to low-income students.

 

As of 2008, total federal assistance to post-secondary students had grown to almost 10 times what it was in the 1970s (constant dollars). Today, more than $150 billion in federal grants, loans, and work-study funds are provided annually to more than 15 million students through more than 6,000 colleges and career schools. In the past several years, the composition of that aid has also changed, from 2/3 grants in the 1970s to over ¾ loans in recent years.

 

In 2010, President Obama signed into law the Health Care and Education Reconciliation Act, a sweeping reform of the student financial aid industry that saves $68 billion over 11 years by cutting out the middleman—lending institutions—from the loan process, thereby eliminating federal subsidies paid to banks and allowing students to get federal loans directly from the government by way of filing applications through their college’s financial aid office. Its other reforms included annual increases of Pell grant awards and capping loan repayments at 10% of the borrower’s discretionary income.

President Lyndon B. Johnson’s remarks at the signing ceremony for the Higher Education Act of 1965 (LBJ Presidential Library Media Gallery)

Health Care and Education Reconciliation Act (pdf)

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What it Does:

In distributing funds to the largest number of individual recipients of any federal program, except for universal entitlement programs such as Social Security, the Office of Federal Student Aid (FSA) actively promotes its financial aid. It works with financial aid offices in educational institutions to publicize its programs to students and to monitor aid recipients’ continuing enrollment, and it seeks private lenders to participate in funding federally guaranteed loans. For this purpose it staffs 10 regional offices throughout the country, in addition to its headquarters in Washington D.C. It also pursues repayment of what is now a portfolio of more than a trillion dollars in outstanding student loans ($864 billion in federal government loans, and $150 billion in private loans). In the case of direct loans, its staff takes the lead in collection, including renegotiating repayment terms. For private loans, it reviews collection efforts for delinquent loans prior to honoring the loan guarantees. In both cases, the FSA can access IRS records to determine what income the borrower has available to make payments, and can authorize collection efforts such as garnishing of wages. By the end of 2011, some 850,000 private student loans were in default to the tune of more than $8 billion. In 2012, 600,000 defaulted and in the first half of 2013, in a sign of more trouble on the horizon, $52 billion of what had been current student loans became delinquent.

 

 

From the Web Site of Federal Student Aid

Announcements

Applying to Schools

Career Options

Choosing a School

Contact Information

Contracting Information

Costs of College

Data Center

Employment Opportunities

En Espanol

Events

FAFSA

Glossary

Grants and Scholarships

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Military Family Aid

Prepare for College

Repayment of Loans

Resources

Scams

School Search

Strategic Plans and Reports

Survey Form

Types of Aid

Who Gets Aid

Why Go to College

Work-Study Jobs

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Where Does the Money Go:

As well as the students who receive loan and grant funds to pay educational expenses, the schools and colleges who enroll these students receive the majority of the proceeds. With Federal Student Aid (FSA) loans now exceeding $150 billion annually, the federal government has become the largest single source of funding for higher education in the United States. Private lenders who participate in the programs also receive substantial payments through loan fees, subsidized interest while students’ payments are deferred as they continue schooling and for six+ months afterward, and guaranteed payments in cases of default. SLM Corporation (Sallie Mae) is the largest student lender.

 

The FSA has spent more than $186 million on more than 400 contractor transactions between FY 2008 and FY 2012, according to USAspending.gov. The top five types of products or services purchased by FSA during that period were financial services ($92,796,859), IT and telecom / facility operation and maintenance ($25,129,459), ADP software ($12,720,705), ADP systems development ($7,129,506), and IT/telecom systems analysis ($6,181,696). The top five recipients of FSA contractor spending were:

1. Accenture Public Limited Company                      $84,387,194   

2. Dell Inc.                                                                  $19,549,506   

3. Avineon Inc.                                                             $7,687,114   

4. PPS InfoTech LLC                                                   $7,166,352   

5. CA Inc.                                                                     $5,868,677

 

Private Student Loans (2012 Report to Congress, Consumer Financial Protection Bureau) (pdf)

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Controversies:

Transparency and Accountability

A federal court ruling in 2013 damaged the U.S. Department of Education’s efforts to regulate for-profit colleges, making it more difficult for federal regulators to bring about greater transparency and accountability.

 

The case stemmed from a lawsuit brought by the Association of Private Sector Colleges and Universities, the trade association of for-profit colleges. The plaintiffs challenged the government’s Gainful Employment (GE) regulations, which attempted to measure the quality of schooling being provided by for-profits.

 

After hearing arguments from both sides, the judge in that original 2012 decision affirmed the Education Department’s ability to regulate GE and Education’s requirements that GE programs disclose information like median debt to students.

 

But the judge had a problem with one of the three measures used to determine whether a program prepared students for gainful employment. Regarding the student loan repayment rate, the judge said it “lacked a reasoned basis.”

 

Because this measure was linked to the other two, the judge threw them all out. This decision resulted in the disclosure requirements also being eliminated.

 

Government lawyers asked the federal district court in 2013 to reinstate the reporting requirements so that it could implement the disclosure provisions of the GE rules, but the court denied the request.

Special Report: Student Loan Scandal (New America Foundation)

Court Throws Huge Wrench in Higher Education Transparency Efforts (by Amy Laitinen, New America Foundation)

Gainful Employment Electronic Announcement #42 - 2011-2012 Disclosures for Gainful Employment Programs (David Bergeron, Acting Assistant Secretary for Postsecondary Education)

Court Vacates Most of ED's Gainful Employment Regulations (American Association of Community Colleges)

 

Aid Fraud on the Rise

A report from the U.S. Department of Education in 2011 claimed online education scams had increased dramatically.

 

The scams often involved enrolling phony students in classes and pocketing money provided by lenders. In one case, the identities of 50 prison inmates were stolen to “enroll” them in classes and access $300,000 in federal student aid.

 

The report said that, since 2005, federal investigators had broken up 42 financial aid fraud rings, resulting in $7.5 million in fines against those implicated.

 

Community colleges in particular were subject to many of the scams. In California, perpetrators posing as students or using stolen identities from other people illegally obtained more than $770,000 in financial aid and loans via community colleges and online schools, federal prosecutors said in 2012. Seventeen people were indicted in six cases involving 15 California campuses, including Santa Barbara City College, Bakersfield College, Antelope Valley College, and San Diego City College.

Student Financial Aid Fraud Grows Along with Online College Growth (by Shannon Kietzman, AllVoices.com)

Financial Aid At California Colleges Hit By Scams, Officials Say (by Larry Gordon, Los Angeles Times)

 

Aid Oversight Rules to be Repealed?

The U.S. House in 2012 attempted to repeal a pair of regulations that created a federal definition of “credit hour” and required states to increase oversight over colleges.

 

For-profit and nonprofit institutions of higher education opposed those regulations, which were adopted less than a year earlier.

 

President Barack Obama favored the rules claiming they would “help ensure the integrity” of Federal Student Aid (FSA) programs and prevent credit inflation that “could result in the over-awarding of federal student aid.”

 

Colleges argued there was no evidence of problems in the awarding of credits or state oversight, and accused the administration of overreaching.

 

Even if the repeal effort cleared Congress, it was expected that Obama would veto it.

House Votes to Repeal 2 Controversial Education Department Rules (by Kelly Field, Chronicle of Higher Education)

House Panel Votes to Repeal 'Credit Hour' and 'State Authorization' Rules (by Armando Montaño, Chronicle of Higher Education)

Protecting Academic Freedom In Higher Education Act (Education and the Workforce Committee)

 

College Tuition Cost Increases — Linked to Federal Aid?

With the push by President Barack Obama to increase federal student aid came arguments and studies that claimed such spending helped cause increases in college tuitions.

 

The Wall Street Journal reported that the relationship between increasing aid and soaring prices at nonprofit four-year colleges was not a sure thing, saying studies showed everything from there being no link to a strong causal connection.

 

One new study found that tuition at for-profit schools where students receive federal aid was 75% higher than at comparable for-profit schools whose students don't receive any aid.

 

Andrew Biggs wrote in The Atlantic that economic research suggested that colleges siphoned off a “significant portion of federal education aid rather than lowering costs to students. Simply put, much of federal student aid is corporate welfare for colleges.”

 

Conservative critics like William Bennett, former secretary of education in the administration of President Ronald Reagan, insisted the cost of college tuition would continue to rise as long as FSA programs continued to increase with little or no accountability.

New Course in College Costs (by Josh Mitchell, Wall Street Journal)

The Truth About College Aid: It's Corporate Welfare (by Andrew Biggs, Atlantic)

Why Student Aid Is NOT Driving Up College Costs (by David L. Warren, National Association of Independent Colleges and Universities)

How Can It Be? Student Financial Aid Fuels Increase In College Tuition (by Richard Vedder and Andrew Gillen, Center for College Affordability and Productivity)

Stop Subsidizing Soaring College Costs (by William J. Bennett, CNN)

 

Pell Runners

“Pell runners” have become a growing problem for community colleges in the United States.

 

A Pell runner is a scam artist who moves from college to college, enrolling in classes to become eligible for a Pell Grant, then disappears with the money. Fraudsters can do this up to 18 semesters before they can no longer apply for grant money.

 

According to the National Association of Student Financial Aid Administrators, the rate of improper payments of Pell Grants increased from $600 million in 2009 to $1 billion in 2011. During the same period, the cost of the Pell program itself doubled, leaving it vulnerable to budget cuts.

 

In order to save precious funds, the U.S. Department of Education was attempting to thwart Pell runners, investigating 74 fraud rings. Based on the number of students who get Pell Grants but never graduate, it is estimated that some 3% of Pell dollars go to Pell runners.

Education Department Chases 'Pell Runners' Who Threaten Aid Program (by Kelly Field, Chronicle of Higher Education)

Colleges Fight Fraud With More Coursework (by Mary Beth Marklein, USA Today)

Pell-Running (by Duke Cheston, John William Pope Center)

Interview with Coretta King (Pell Grant Controversy)

 

For-Profit College Company Recruited Unqualified Students to Earn More FSA

Education Management Corp. (EDMC), the nation’s second largest for-profit college company, was sued by the U.S. Department of Justice in 2011 for violating FSA rules. As it had done so since 2003, the government claimed, approximately $11 billion in FSA money went to the EDMC.

 

The federal government and five states joined two former EDMC employees who claimed the company gave incentives to recruiters for bringing more students into EDMC programs, which was a violation of federal law.

 

The plaintiffs also said the incentive-based approach resulted in many unqualified students being enrolled by the company’s schools.

 

“The depth and breadth of the fraud laid out in the complaint are astonishing,” Harry Litman, a lawyer involved in the case, told The New York Times. “It spans the entire company—from the ground level in over 100 separate institutions up to the most senior management—and accounts for nearly all the revenues the company has realized since 2003.”

 

The EDMC had about 150,000 students in 109 schools nationwide. Following the government action, enrollment fell by 16% by the end of 2012.

Pittsburgh-Based Education Management Squares Off Against Justice Department In Court (by Rich Lord, Pittsburgh Post-Gazette)

For-Profit Colleges Under Growing Scrutiny (by Nathan Koppel, Wall Street Journal)

Questions Follow Leader of For-Profit Colleges (by Tamar Lewin, New York Times)

For-Profit College Group Sued as U.S. Lays Out Wide Fraud (by Tamar Lewin, New York Times)

 

From the War on Poverty to a Middle-Class Entitlement

As originally conceived in the 1965 legislation, the primary purpose of federal student aid was to assist disadvantaged students rise out of poverty. As median income has stagnated and tuition costs have risen greatly, the definitions of financial need to qualify for grants and interest-subsidized loans has also risen substantially. Moreover, the bulk of the expansion of FSA funding has gone into unsubsidized loans available to all students, which, in 2007-8 totaled $45.2 billion and accounted for 58% of loans and 50% of total assistance (pdf). This transformation has also made the FSA into a program with widespread political support. As the Department of Education budget is approved by Congress each year, and as the Higher Education Act comes up periodically for reauthorization, the mix in the targeting of student aid is a constant debate item. The College Cost Reduction and Access Act of 2007 did substantially increase the budget for Pell Grants, the largest need-based assistance program for students from low and middle-income families.

 

When President Obama signed into law the Student Aid and Fiscal Responsibility Act (SAFRA) in March 2010, it opened the Pell Grant program to tens of thousands of low-income students and further increased the amount of the award, which will continue to rise annually beginning in the 2013-2014 academic year. In the other direction, some want the government out of the business of education loans and social policy, replacing most or all of the assistance with federal tax credits for families that spend money for post secondary education.

Making College Affordable (by Jeff Jacoby, Boston Globe)

 

Controversy over SAFRA

Adopted in March 2010 as part of the Affordable Care Act, the Student Aid and Fiscal Responsibility Act (SAFRA) sought to expand and bolster the Pell Grant program, a cornerstone of FSA, and made a major change regarding student loans. Conservatives vehemently opposed the measure pushed by President Barack Obama for multiple reasons.

 

SAFRA increased the maximum Pell Grant award to $5,550 in 2011. Beginning in the 2013-2014 academic year, Pell Grant amounts increase annually by the inflation rate plus 1%.

 

The law also allocated funds to allow for thousands of new students to become eligible for the program in order to help those struggling to get out of poverty.

 

In addition, SAFRA ended government subsidies to private banks offering student loans, which supporters said eliminated unnecessary payments to banks and made loans cheaper and more accessible to students.

 

Conservatives hated the plan. Republicans in Congress branded the expansion of federal aid to students as unnecessary, while many commentators claimed it represented the nationalization of student loans.

The Student Aid & Fiscal Responsibilty Act (by Calla Hummel, eHow)

Student Loan Program (by Raven Clabough, New American)

SAFRA Stinks (by Neal McCluskey, Forbes)

Despite Slamming Student Loan Reform As ‘Washington Takeover,’ House GOP Leaves It Out Of Repeal Bill (by Pat Garofalo, Think Progress)

 

Access to What?

The FSA office under George W. Bush was accused of taking a hands-off approach when regulating higher education institutions, choosing instead to “let the market decide.”

 

Critics said the FSA was so out of it that anyone with post-secondary training who had obtained some type of accreditation could recruit students paying substantial tuition with federal student loans.

 

The result was that institutions “with little or no vocational or educational value,” according to the U.S. Department of Education, were, in effect, subsidized with federal student aid.

 

Criticism continued during the Obama administration, with a report from the Senate Committee on Health, Education, Labor and Pensions claiming few of the for-profit colleges it investigated were providing a good education for the amount of federal student aid they received. Very little of the money they pull in is spent on instruction—most of it goes into executive salaries, staffing, marketing and recruiting.

 

The report also said large numbers of students at for-profits failed to complete their programs, citing a 64% dropout rate among those seeking associate degrees.

Trade School Bent Rules to Get Aid, Official Say (by Karen W. Arenson, New York Times)

For-Profit Colleges Thrashed In Congressional Report (by James Marshall Crotty, Forbes)

Congressional Report Slams For-Profit Colleges (by Paul Fain, Inside Higher Ed)

For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success (Senate Committee on Health, Education, Labor and Pensions)

 

For-Profit Schools Take Advantage of GIs

For-profit schools have been criticized for targeting veterans with misleading offers of higher education, only to leave them disappointed and in some cases feeling ripped off.

 

Frontline dedicated one show to how for-profits were aggressively going after GIs, including those suffering from post-traumatic stress disorder (PTSD).

 

All of the veterans interviewed by Frontline expressed displeasure with their for-profit education. Such schools specifically went after PTSD veterans, claiming their distance-learning programs were ideal for those unable to endure in-class education.

 

Some former Marines told how they couldn’t even remember some of the classes they had signed up for, which wasn’t a concern for the school as long as it received federal subsidies for the students.

 

Pursuing veterans had become a profitable enterprise for these institutions. From 2006 to 2010, the money received in military education benefits by just 20 for-profit companies jumped from $66.6 million to $521.2 million.

Alleged Mistreatment Of Vets By For-Profit Colleges (by James Marshall Crotty, Forbes)

Educating Sergeant Pantzke (Frontline)

Brain-Injured Marines and For-Profit Colleges (by Jean Braucher, Credit Slips)

For-Profit Colleges, Vulnerable G.I.’s (by Hollister Petraeus, New York Times)

How Pricey For-Profit Colleges Target Vets' GI Bill Money (by Adam Weinstein, Mother Jones)

 

Aid Elimination Penalty for Drug Use Causes Controversy

A Democratic lawmaker tried in 2009 to revoke a provision in federal law that prohibits students convicted of drug possession from receiving federal student loans.

 

Representative George Miller (D-California) introduced the provision into the Student Aid and Fiscal Responsibility Act of 2009 that would reverse a 1998 amendment making students convicted of drug possession ineligible to collect federal funding unless they completed a rehab program and passed two unannounced drug tests. Students convicted of selling drugs would continue to be prohibited from receiving financial aid under the amendment.

 

Kris Krane, executive director of Students for Sensible Drug Policy, said current law represented “an unfair penalty.”

 

“It’s double jeopardy, and it impacts students of color and low income students predominantly,” she told Fox News. “It actually creates more drug abuse, because we know that the best way to prevent drug abuse later on in life is to get a college degree. That opens opportunities for economic advancement later on in life.”

 

Some law enforcement groups opposed the change, saying the current policy deterred students from using drugs. Opposition to the amendment prevented it from remaining in the final bill when the House adopted it.

Drug Offenders To Get Federal Student Aid Under New Bill (by Maxim Lott, Fox News)

Student Drug Policy Reform Dropped From Health Bill (by Jane Teixeira, The California Aggie)

Drug Busts Hit Students Hard (WI Druggies Lose Financial Aid) (by Megan Doughty, Madison.com)

 

Theresa Shaw Controversy

The George W. Bush administration’s head of the FSA office resigned in 2007 following accusations that the FSA had been lax in policing the $85 billion student loan industry.

 

Theresa Shaw’s departure from the FSA was unrelated to reports that lenders had leveraged universities and financial aid officers with favors to win more business, according to officials in the Department of Education.

 

It was also reported that Shaw had received $250,000 in bonuses, which alarmed Democratic lawmakers in Congress.

 

Andrew Cuomo, attorney general of New York State, claimed the Education Department had been “asleep at the switch” in regulating the practices of lenders, prompting him to launch his own investigation.

 

Shaw was appointed in 2002 by Education Secretary Rod Paige after 22 years in industry, mostly at Sallie Mae, the largest student lender.

Federal Student Loan Official Is Resigning (by Jonathan Glater, New York Times)

Audit Report (U.S. Department of Education)

Dems Question $250,000 in Bonuses for Gov Official (by Justin Rood, ABC News)

 

Overpayments to Lenders

The inspector general (IG) for the U.S. Department of Education reported in 2007 that the FSA had overpaid lenders hundreds of millions of dollars in student loans.

 

One lender, Nebraska-based Nelnet, was overpaid $278 million from 2003 to 2005, according to the IG report.

 

Two other lenders, the New Hampshire Higher Education Loan Corp. and the Arkansas Student Loan Authority, voluntarily returned millions of dollars in subsidy payments after discovering overpayments by the government.

 

The Washington Post said its own analysis of FSA records indicated that potential overpayments to lenders from 2003 to 2006 could total $300 million.

Confusion Cited in Overpayments To Student Lenders (by Amit R. Paley, Washington Post)

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Suggested Reforms:

Put Banks Back in Charge of Student Aid

Representative Paul Ryan (R-Wisconsin) proposed while campaigning as Mitt Romney’s running mate in 2012 to make several reforms to Federal Student Aid (FSA), including a rollback of changes under President Barack Obama that cut banks out of the student loan process.

 

Prior to the passage of the Student Aid and Fiscal Responsibility Act (SAFRA), federally backed student loans were administered through a public-private partnership in which the federal government subsidized and guaranteed student loans provided by private lenders.

 

This system allowed banks to receive taxpayer money as an incentive to keep interest rates low. The government also guaranteed that it would pay back up to 97% of the loan principal if the borrowers defaulted, which cut out virtually all risk for banks.

 

“That proved an inefficient way to provide loans, but a great way to prop up banks and waste a bunch of money,” Tim Price wrote at Salon.

 

If Ryan and Romney had had their way, the government would have returned to this system so banks could again profit from student loan lending.

 

Ryan also advocated for changes to the Pell Grant program. The Republican congressman wanted students who qualify for just the minimum award amount, part-time students and those enrolled in summer classes to be ineligible for Pell grants.

Ryan, GOP’s Likely VP Nominee, Plans To Reform Federal Student Aid (by James Toliver, Jambar.com)

GOP’s Newest Attack On Student Loans (by Tim Price, Salon)

 

Obama’s 2012 Plans for Reform of Financial Student Aid

President Barack Obama proposed in 2012 to make several reforms impacting federal student aid for those in college.

 

During his State of the Union address, Obama talked of reforms that would shift aid away from colleges that fail to keep tuition costs down, and toward those colleges and universities that work to keep tuition affordable, provide good value, and serve needy students.

 

Later in the year Obama called for increasing the Pell Grant cap, doubling the number of work-study positions available, and making other changes to federal student-loan programs.

 

Under Obama’s budget plan, the federal Pell Grant limit would increase from $5,550 to $5,635, with an additional 110,000 work-study jobs over five years.

 

The president’s proposal also sought to cap the federal Stafford Loan interest rate at 3.4% for one more year (interest rates were set to jump to 6.8% in July 2012).

 

Furthermore, funding for Perkins Loans would also increase from $1 billion to $8.5 billion under the president’s plan.

FACT SHEET: President Obama’s Blueprint for Keeping College Affordable and Within Reach for All Americans (White House)

Higher Ed Experts Applaud Obama's Student Aid Proposals (by Chastity Dillard, Daily Iowan)

Obama Speeds Up Aid for College Students: How Will It Help You? (by Huma Khan, ABC News)

 

Past Student Aid Reform Ideas

Seemingly a year doesn’t go by without at least one education group offering up its suggestions for changing the way the federal government supports college education.

 

In 2008, the Rethinking Student Aid Study Group, made up of college presidents, economists, and other financial aid experts, called for allowing parents and students to submit their tax information in a simpler way, instead of filling out the 145-question federal financial aid application.

 

In addition, the group said Congress should consolidate the many small grants and loan programs into one program, which would save the government and colleges millions of dollars in administrative costs and make it easier for students to understand.

 

In 2009, The Friday the 13th Group, composed of financial aid administrators from about 50 schools, issued a report with several recommendations:

 

One called for establishing 100% federal funding for all federal student loans and simplifying the financial aid system for students by eliminating several federal grants, such as the Supplemental Educational Opportunity Grant (SEOG) and redirecting those financial resources toward need-based financial aid by expanding funding for the Pell Grant and Federal Work Study programs.

 

In 2010, the Center for College Affordability and Productivity issued its own report that echoed some of the previous changes mentioned. These included reducing the number of federal programs, simplifying forms, reintroducing private competitive servicing of student loans, and using a voucher system instead of institutional subsidies.

 

Reforming Federal Student Aid Programs (The Friday the 13th Group)

Researchers Offer New Ideas for College Financial Aid Reform (by Kim Clark, U.S. News & World Report)

25 Ways to Reduce the Cost of College (Center for College Affordability and Productivity)

Reforming Student Aid (Rethinking Student Aid Study Group)

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Former Directors:

William J. Taggart – 2009-2011

On June 1, 2009, U.S. Secretary of Education Arne Duncan appointed William J. Taggart to be the COO of the FSA. He held the post until his resignation on July 15, 2011.

 

Born in December 1961, Taggart earned a Bachelor’s degree in Business Administration from Howard University in 1984 and an MBA from Harvard Graduate School of Business Administration in 1991.

 

Taggart has spent his entire 24-year career in the for-profit private business sector of the economy, working mainly for large companies in the financial industry. He started his career in 1984 at IBM as a Program Manager, working in Bethesda, Maryland, and at corporate headquarters in Armonk, New York. Taggart left IBM in 1989 to return to school, returning in June 1991 as a Senior Engagement Manager with IBM Consulting Group, where he remained for nearly four years.

 

Relocating to Charlotte, North Carolina, in May 1995, Taggart, as Director of Strategic Support Services, helped to found an internal consulting unit for former banking giant First Union, with whom he remained for four and a half years, when First Union merged with Wachovia. After the merger, Taggart received the title Chief Administrative Officer at Wachovia Insurance Group, where he remained for two years. He then joined Pivot/Info-One, a wholly owned subsidiary of Wachovia Insurance that provides web-based insurance and annuity sales information products and services. He was co-President from March 2001 through July 2003. Taggart then returned to Wachovia proper, as Chief Operating Officer of Corporate and Investment Banking at Wachovia Securities, LLC, where he stayed for nearly five years, from August 2003 to June 2008. After thirteen years with Wachovia, Taggart finally left to found his own company, Veritas One Consulting, LLC, a Charlotte-based consulting firm focusing on healthcare, financial services and government.

 

A Democrat, Taggart has donated $6,800 to Democratic candidates between 1996 and 2008, including $4,600 to the 2008 presidential campaign of Barack Obama.

 

James Manning, Acting (Acting) – 2008-2009

 

Lawrence Warder (Acting) – 2007-2008

Warder Exits Education Dept.; Leaves FSA in Hands of Manning (Department of Education press release)

 

Theresa S. Shaw – 2002-2007

Theresa (“Terri”) S. Shaw was appointed COO in September 2002 and announced her resignation May 9, 2007. Coming to Federal Student Aid from a 20-year career in the student loan industry, including recent stints as Chief Information Officer for Sallie Mae, and Executive Vice President and Chief Operating Officer of eNumerate Solutions, Inc., Shaw came under scrutiny when overpayments to private lenders and lender payments to universities referring students for loans were exposed in early 2007. However, the Secretary of Education claimed her resignation was unrelated to these controversies. She also received negative publicity in 2004 over the issue of bonuses received by 75% of Department of Education staff and totaling $5.7 million, the largest of which, $71,500, was to Shaw herself.

Federal Student Loan Official is Resigning (by Jonathan D. Glater, New York Times)

 

Greg Woods - 1998-2002

Biography (Department of Education)

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Comments

Nona Kyle 1 year ago
Student Loan practices are creating a new class of slaves. Paying off a college loan to age 85 should not be possible. Proprietary colleges--no good. Student loan scams--prevalent. At age 80 I get a call every week from National Student Loan group wanting to help me get a better rate on my loan. I do not have a loan. Have never had one. Worked my way through college and graduate in 1959. WHO ARE THESE FREAKING SCAM ARTISTS? WHY can't the scamming be stopped?
Lisa Vandenberg 1 year ago
My husband is paying back a student loan did all paper work and for 3 months the government took 154.oo from his social security and 36.oo and wyndam collection agency 36.00 he has talked to every one about this and all he gets is the runaround nice job our goverment is doing trying to make us homeless

Leave a comment

Founded: 1998 as currently organized. Most programs began in 1965 under the now defunct Department of Health, Education and Welfare and were transferred to the Department of Education in 1980.
Annual Budget: $1.126 billion (FY 2013 Request). With this administrative budget, FSA estimates that it will provide $149 billion in assistance to students, which includes $121 billion in new loans and $28 billion in consolidations of previously existing loans.
Employees: 1,200 (FY 2012)
Official Website: http://studentaid.ed.gov/
Federal Student Aid (FSA)
Runcie, James
Previous Chief Operating Officer

James W. Runcie was appointed to lead the Office of Federal Student Aid (FSA) on September 15, 2011, and reappointed to the post December 23, 2015. Federal Student Aid, part of the U.S. Department of Education, provides more than $150 billion in federal grants, loans, and work-study funds each year to more than 13 million students paying for college or career school. These loans are issued either directly from the federal government or as federally guaranteed private loans.

 

Runcie was born in Jamaica, son of a sugar cane farmer, and moved with his family to New York when he was four years old. He attended Roosevelt High School in Hyde Park, New York, where he starred as a basketball player, graduating in 1981. He initially played for the University of Virginia, but transferred to Holy Cross in Worcester, Massachusetts, the following year. There he was involved in an incident with racial overtones. In December 1984, Runcie was punched during a practice by a white player. As a result, Runcie and three other black players walked off the team. One rejoined the team but the others did not. At the time, 1.7% of the Holy Cross student body was African-American. Years later, Runcie was a leading scorer in New York’s Lawyer’s Basketball League.

 

Runcie earned a bachelor’s degree in mathematics from Holy Cross in 1985, and an MBA from Harvard in 1991.

 

Runcie’s career began in the business world, not education. He worked for Xerox, and then in 1991 the investment bank Donaldson, Lufkin & Jenrette, becoming a senior vice president. He moved to Banc of America Securities as a managing director in 2000, and then joined UBS Investment Bank in 2002, where he was co-head of Equity Corporate Finance.

 

Runcie joined the Federal Student Aid program in September 2009, first as an adviser, and then the following year as deputy chief operating officer. In May 2011, he was promoted to acting CEO.

 

Shortly after Runcie was named to officially lead the agency in September 2011, FSA suffered a brief data glitch that allowed users of its website to see others’ financial data for about seven minutes.

 

In November 2015, the Government Accountability Office criticized FSA for not doing enough to stop student aid fraud, particularly at for-profit colleges. The Consumer Financial Protection Bureau also found that borrowers were mistreated by private financial institutions that had been overseen by FSA. One company, Navient, was accused by federal prosecutors of breaking the law by overcharging active-duty military personnel for student loans. Navient had been cleared by FSA after what the Education Department’s inspector general later found to be a flawed investigation.

 

Runcie oversaw the important move from bank-based student loans to those held by the federal government, which saved taxpayers billions of dollars. During his tenure, FSA has increased the direct loan portfolio of federal student loans from 9.2 million recipients representing $155 billion to 32 million recipients representing $1 trillion.

 

Runcie’s brother, Robert, is also involved in education as the superintendent of the Broward County (Florida) School District.

-David Wallechinsky

 

To Learn More:

Official Biography

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Taggart, William
Former Chief Operating Officer

On June 1, 2009, U.S. Secretary of Education Arne Duncan appointed William J. Taggart to be chief operating officer (COO) of the department's Federal Student Aid office (FSA). FSA is a Performance Based Organization (PBO), which is intended to create incentives for high performance and accountability for results, while allowing more flexibility to promote innovation and increased efficiency. 

 
Born in December 1961, Taggart earned a Bachelor’s degree in Business Administration from Howard University in 1984 and an MBA from Harvard Graduate School of Business Administration in 1991. 
 
Taggart has spent his entire 24 year career in the for-profit private business sector of the economy, working mainly for large companies in the financial industry. He started his career in 1984 at IBM as a Program Manager, working in Bethesda, Maryland, and at corporate headquarters in Armonk, New York. Taggart left IBM in 1989 to return to school, returning in June 1991 as a Senior Engagement Manager with IBM Consulting Group, where he remained for nearly four years. 
 
Relocating to Charlotte, North Carolina, in May 1995, Taggart, as Director of Strategic Support Services, helped to found an internal consulting unit for former banking giant First Union, with whom he remained for four and a half years, when First Union merged with Wachovia. After the merger, Taggart received the title Chief Administrative Officer at Wachovia Insurance Group, where he remained for two years. He then joined Pivot/Info-One, a wholly owned subsidiary of Wachovia Insurance that provides web-based insurance and annuity sales information products and services. He was co-President from March 2001 through July 2003. Taggart then returned to Wachovia proper, as Chief Operating Officer of Corporate and Investment Banking at Wachovia Securities, LLC, where he stayed for nearly five years, from August 2003 to June 2008. After thirteen years with Wachovia, Taggart finally left to found his own company, Veritas One Consulting, LLC, a Charlotte-based consulting firm focusing on healthcare, financial services and government. 
 
Taggart will certainly have his work cut out for him. President Obama’s proposed 2010 budget would significantly expand federal student aid programs.  Under the proposal, the Department of Education would administer more than $129 billion in new grants, loans, and work-study assistance in 2010—a 32 percent increase over the amount available in 2008—to help more than 14 million students and their families pay for college.  A major initiative of the plan, fiercely opposed by the banking industry, is for all new parent and student loans to be issued directly from the government rather than through private lenders.  This change would save taxpayers an estimated $4 billion a year that will be directed to Federal Pell Grants and other aid for needy students.
 
A Democrat, Taggart has donated $6,800 to Democratic candidates since 1996, including $4,600 to the presidential campaign of Barack Obama. 
 
Obama Student Loan Plan Wins Support in House (by David Herszenhorn, New York Times)
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Overview:

Federal Student Aid (FSA) provides financial assistance to students pursuing all types of education subsequent to high school, from vocational school to graduate school. Most students receive assistance in the form of loans to be repaid after completion of education. These loans are either direct from the federal government or federally guaranteed private loans. The FSA also has grant programs, with eligibility based on financial need, and work-study programs in which it pays part of the wages of student workers. Students can apply for any FSA program through the consolidated Free Application for Federal Student Aid available on-line. In FY 2011, the FSA processed 21 million such applications and assisted more than 15 million students.

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History:

The nation’s first student aid program was launched at Harvard University in 1840, which was 27 years before the creation of the U.S. Department of Education. The first state financial aid association came into being in 1935, followed by numerous fellowship and scholarship programs through universities, organizations and the government.

 

Although federal assistance for higher education began with the GI Bill of 1944, the federal government started making financial assistance available to large numbers of students after the passage of the Higher Education Act of 1965 (pdf). The National Student Financial Aid Council was created in 1966 and, in 1972, Congress replaced the term “higher education” with “post-secondary education” as it expanded financial aid to students in vocational education, community colleges, trade schools, and part-time students as well as students in traditional four-year degree programs.

 

Federal student aid programs were located in the now-defunct Department of Health, Education and Welfare until the creation of the Department of Education in 1980. In 1998, the Office of Federal Student Aid was created to consolidate student aid programs under one agency, to better monitor student aid recipients, educational institutions, and participating lenders.  

 

Student aid made a big leap from paper to electronic applications when FAFSA went online in 1997. A decade later, distribution of paper applications was discontinued. In 1998, the Middle Income Student Assistance Act was passed, which expanded federal student assistance programs to include middle-income students in addition to low-income students.

 

As of 2008, total federal assistance to post-secondary students had grown to almost 10 times what it was in the 1970s (constant dollars). Today, more than $150 billion in federal grants, loans, and work-study funds are provided annually to more than 15 million students through more than 6,000 colleges and career schools. In the past several years, the composition of that aid has also changed, from 2/3 grants in the 1970s to over ¾ loans in recent years.

 

In 2010, President Obama signed into law the Health Care and Education Reconciliation Act, a sweeping reform of the student financial aid industry that saves $68 billion over 11 years by cutting out the middleman—lending institutions—from the loan process, thereby eliminating federal subsidies paid to banks and allowing students to get federal loans directly from the government by way of filing applications through their college’s financial aid office. Its other reforms included annual increases of Pell grant awards and capping loan repayments at 10% of the borrower’s discretionary income.

President Lyndon B. Johnson’s remarks at the signing ceremony for the Higher Education Act of 1965 (LBJ Presidential Library Media Gallery)

Health Care and Education Reconciliation Act (pdf)

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What it Does:

In distributing funds to the largest number of individual recipients of any federal program, except for universal entitlement programs such as Social Security, the Office of Federal Student Aid (FSA) actively promotes its financial aid. It works with financial aid offices in educational institutions to publicize its programs to students and to monitor aid recipients’ continuing enrollment, and it seeks private lenders to participate in funding federally guaranteed loans. For this purpose it staffs 10 regional offices throughout the country, in addition to its headquarters in Washington D.C. It also pursues repayment of what is now a portfolio of more than a trillion dollars in outstanding student loans ($864 billion in federal government loans, and $150 billion in private loans). In the case of direct loans, its staff takes the lead in collection, including renegotiating repayment terms. For private loans, it reviews collection efforts for delinquent loans prior to honoring the loan guarantees. In both cases, the FSA can access IRS records to determine what income the borrower has available to make payments, and can authorize collection efforts such as garnishing of wages. By the end of 2011, some 850,000 private student loans were in default to the tune of more than $8 billion. In 2012, 600,000 defaulted and in the first half of 2013, in a sign of more trouble on the horizon, $52 billion of what had been current student loans became delinquent.

 

 

From the Web Site of Federal Student Aid

Announcements

Applying to Schools

Career Options

Choosing a School

Contact Information

Contracting Information

Costs of College

Data Center

Employment Opportunities

En Espanol

Events

FAFSA

Glossary

Grants and Scholarships

Loans

Military Family Aid

Prepare for College

Repayment of Loans

Resources

Scams

School Search

Strategic Plans and Reports

Survey Form

Types of Aid

Who Gets Aid

Why Go to College

Work-Study Jobs

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Where Does the Money Go:

As well as the students who receive loan and grant funds to pay educational expenses, the schools and colleges who enroll these students receive the majority of the proceeds. With Federal Student Aid (FSA) loans now exceeding $150 billion annually, the federal government has become the largest single source of funding for higher education in the United States. Private lenders who participate in the programs also receive substantial payments through loan fees, subsidized interest while students’ payments are deferred as they continue schooling and for six+ months afterward, and guaranteed payments in cases of default. SLM Corporation (Sallie Mae) is the largest student lender.

 

The FSA has spent more than $186 million on more than 400 contractor transactions between FY 2008 and FY 2012, according to USAspending.gov. The top five types of products or services purchased by FSA during that period were financial services ($92,796,859), IT and telecom / facility operation and maintenance ($25,129,459), ADP software ($12,720,705), ADP systems development ($7,129,506), and IT/telecom systems analysis ($6,181,696). The top five recipients of FSA contractor spending were:

1. Accenture Public Limited Company                      $84,387,194   

2. Dell Inc.                                                                  $19,549,506   

3. Avineon Inc.                                                             $7,687,114   

4. PPS InfoTech LLC                                                   $7,166,352   

5. CA Inc.                                                                     $5,868,677

 

Private Student Loans (2012 Report to Congress, Consumer Financial Protection Bureau) (pdf)

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Controversies:

Transparency and Accountability

A federal court ruling in 2013 damaged the U.S. Department of Education’s efforts to regulate for-profit colleges, making it more difficult for federal regulators to bring about greater transparency and accountability.

 

The case stemmed from a lawsuit brought by the Association of Private Sector Colleges and Universities, the trade association of for-profit colleges. The plaintiffs challenged the government’s Gainful Employment (GE) regulations, which attempted to measure the quality of schooling being provided by for-profits.

 

After hearing arguments from both sides, the judge in that original 2012 decision affirmed the Education Department’s ability to regulate GE and Education’s requirements that GE programs disclose information like median debt to students.

 

But the judge had a problem with one of the three measures used to determine whether a program prepared students for gainful employment. Regarding the student loan repayment rate, the judge said it “lacked a reasoned basis.”

 

Because this measure was linked to the other two, the judge threw them all out. This decision resulted in the disclosure requirements also being eliminated.

 

Government lawyers asked the federal district court in 2013 to reinstate the reporting requirements so that it could implement the disclosure provisions of the GE rules, but the court denied the request.

Special Report: Student Loan Scandal (New America Foundation)

Court Throws Huge Wrench in Higher Education Transparency Efforts (by Amy Laitinen, New America Foundation)

Gainful Employment Electronic Announcement #42 - 2011-2012 Disclosures for Gainful Employment Programs (David Bergeron, Acting Assistant Secretary for Postsecondary Education)

Court Vacates Most of ED's Gainful Employment Regulations (American Association of Community Colleges)

 

Aid Fraud on the Rise

A report from the U.S. Department of Education in 2011 claimed online education scams had increased dramatically.

 

The scams often involved enrolling phony students in classes and pocketing money provided by lenders. In one case, the identities of 50 prison inmates were stolen to “enroll” them in classes and access $300,000 in federal student aid.

 

The report said that, since 2005, federal investigators had broken up 42 financial aid fraud rings, resulting in $7.5 million in fines against those implicated.

 

Community colleges in particular were subject to many of the scams. In California, perpetrators posing as students or using stolen identities from other people illegally obtained more than $770,000 in financial aid and loans via community colleges and online schools, federal prosecutors said in 2012. Seventeen people were indicted in six cases involving 15 California campuses, including Santa Barbara City College, Bakersfield College, Antelope Valley College, and San Diego City College.

Student Financial Aid Fraud Grows Along with Online College Growth (by Shannon Kietzman, AllVoices.com)

Financial Aid At California Colleges Hit By Scams, Officials Say (by Larry Gordon, Los Angeles Times)

 

Aid Oversight Rules to be Repealed?

The U.S. House in 2012 attempted to repeal a pair of regulations that created a federal definition of “credit hour” and required states to increase oversight over colleges.

 

For-profit and nonprofit institutions of higher education opposed those regulations, which were adopted less than a year earlier.

 

President Barack Obama favored the rules claiming they would “help ensure the integrity” of Federal Student Aid (FSA) programs and prevent credit inflation that “could result in the over-awarding of federal student aid.”

 

Colleges argued there was no evidence of problems in the awarding of credits or state oversight, and accused the administration of overreaching.

 

Even if the repeal effort cleared Congress, it was expected that Obama would veto it.

House Votes to Repeal 2 Controversial Education Department Rules (by Kelly Field, Chronicle of Higher Education)

House Panel Votes to Repeal 'Credit Hour' and 'State Authorization' Rules (by Armando Montaño, Chronicle of Higher Education)

Protecting Academic Freedom In Higher Education Act (Education and the Workforce Committee)

 

College Tuition Cost Increases — Linked to Federal Aid?

With the push by President Barack Obama to increase federal student aid came arguments and studies that claimed such spending helped cause increases in college tuitions.

 

The Wall Street Journal reported that the relationship between increasing aid and soaring prices at nonprofit four-year colleges was not a sure thing, saying studies showed everything from there being no link to a strong causal connection.

 

One new study found that tuition at for-profit schools where students receive federal aid was 75% higher than at comparable for-profit schools whose students don't receive any aid.

 

Andrew Biggs wrote in The Atlantic that economic research suggested that colleges siphoned off a “significant portion of federal education aid rather than lowering costs to students. Simply put, much of federal student aid is corporate welfare for colleges.”

 

Conservative critics like William Bennett, former secretary of education in the administration of President Ronald Reagan, insisted the cost of college tuition would continue to rise as long as FSA programs continued to increase with little or no accountability.

New Course in College Costs (by Josh Mitchell, Wall Street Journal)

The Truth About College Aid: It's Corporate Welfare (by Andrew Biggs, Atlantic)

Why Student Aid Is NOT Driving Up College Costs (by David L. Warren, National Association of Independent Colleges and Universities)

How Can It Be? Student Financial Aid Fuels Increase In College Tuition (by Richard Vedder and Andrew Gillen, Center for College Affordability and Productivity)

Stop Subsidizing Soaring College Costs (by William J. Bennett, CNN)

 

Pell Runners

“Pell runners” have become a growing problem for community colleges in the United States.

 

A Pell runner is a scam artist who moves from college to college, enrolling in classes to become eligible for a Pell Grant, then disappears with the money. Fraudsters can do this up to 18 semesters before they can no longer apply for grant money.

 

According to the National Association of Student Financial Aid Administrators, the rate of improper payments of Pell Grants increased from $600 million in 2009 to $1 billion in 2011. During the same period, the cost of the Pell program itself doubled, leaving it vulnerable to budget cuts.

 

In order to save precious funds, the U.S. Department of Education was attempting to thwart Pell runners, investigating 74 fraud rings. Based on the number of students who get Pell Grants but never graduate, it is estimated that some 3% of Pell dollars go to Pell runners.

Education Department Chases 'Pell Runners' Who Threaten Aid Program (by Kelly Field, Chronicle of Higher Education)

Colleges Fight Fraud With More Coursework (by Mary Beth Marklein, USA Today)

Pell-Running (by Duke Cheston, John William Pope Center)

Interview with Coretta King (Pell Grant Controversy)

 

For-Profit College Company Recruited Unqualified Students to Earn More FSA

Education Management Corp. (EDMC), the nation’s second largest for-profit college company, was sued by the U.S. Department of Justice in 2011 for violating FSA rules. As it had done so since 2003, the government claimed, approximately $11 billion in FSA money went to the EDMC.

 

The federal government and five states joined two former EDMC employees who claimed the company gave incentives to recruiters for bringing more students into EDMC programs, which was a violation of federal law.

 

The plaintiffs also said the incentive-based approach resulted in many unqualified students being enrolled by the company’s schools.

 

“The depth and breadth of the fraud laid out in the complaint are astonishing,” Harry Litman, a lawyer involved in the case, told The New York Times. “It spans the entire company—from the ground level in over 100 separate institutions up to the most senior management—and accounts for nearly all the revenues the company has realized since 2003.”

 

The EDMC had about 150,000 students in 109 schools nationwide. Following the government action, enrollment fell by 16% by the end of 2012.

Pittsburgh-Based Education Management Squares Off Against Justice Department In Court (by Rich Lord, Pittsburgh Post-Gazette)

For-Profit Colleges Under Growing Scrutiny (by Nathan Koppel, Wall Street Journal)

Questions Follow Leader of For-Profit Colleges (by Tamar Lewin, New York Times)

For-Profit College Group Sued as U.S. Lays Out Wide Fraud (by Tamar Lewin, New York Times)

 

From the War on Poverty to a Middle-Class Entitlement

As originally conceived in the 1965 legislation, the primary purpose of federal student aid was to assist disadvantaged students rise out of poverty. As median income has stagnated and tuition costs have risen greatly, the definitions of financial need to qualify for grants and interest-subsidized loans has also risen substantially. Moreover, the bulk of the expansion of FSA funding has gone into unsubsidized loans available to all students, which, in 2007-8 totaled $45.2 billion and accounted for 58% of loans and 50% of total assistance (pdf). This transformation has also made the FSA into a program with widespread political support. As the Department of Education budget is approved by Congress each year, and as the Higher Education Act comes up periodically for reauthorization, the mix in the targeting of student aid is a constant debate item. The College Cost Reduction and Access Act of 2007 did substantially increase the budget for Pell Grants, the largest need-based assistance program for students from low and middle-income families.

 

When President Obama signed into law the Student Aid and Fiscal Responsibility Act (SAFRA) in March 2010, it opened the Pell Grant program to tens of thousands of low-income students and further increased the amount of the award, which will continue to rise annually beginning in the 2013-2014 academic year. In the other direction, some want the government out of the business of education loans and social policy, replacing most or all of the assistance with federal tax credits for families that spend money for post secondary education.

Making College Affordable (by Jeff Jacoby, Boston Globe)

 

Controversy over SAFRA

Adopted in March 2010 as part of the Affordable Care Act, the Student Aid and Fiscal Responsibility Act (SAFRA) sought to expand and bolster the Pell Grant program, a cornerstone of FSA, and made a major change regarding student loans. Conservatives vehemently opposed the measure pushed by President Barack Obama for multiple reasons.

 

SAFRA increased the maximum Pell Grant award to $5,550 in 2011. Beginning in the 2013-2014 academic year, Pell Grant amounts increase annually by the inflation rate plus 1%.

 

The law also allocated funds to allow for thousands of new students to become eligible for the program in order to help those struggling to get out of poverty.

 

In addition, SAFRA ended government subsidies to private banks offering student loans, which supporters said eliminated unnecessary payments to banks and made loans cheaper and more accessible to students.

 

Conservatives hated the plan. Republicans in Congress branded the expansion of federal aid to students as unnecessary, while many commentators claimed it represented the nationalization of student loans.

The Student Aid & Fiscal Responsibilty Act (by Calla Hummel, eHow)

Student Loan Program (by Raven Clabough, New American)

SAFRA Stinks (by Neal McCluskey, Forbes)

Despite Slamming Student Loan Reform As ‘Washington Takeover,’ House GOP Leaves It Out Of Repeal Bill (by Pat Garofalo, Think Progress)

 

Access to What?

The FSA office under George W. Bush was accused of taking a hands-off approach when regulating higher education institutions, choosing instead to “let the market decide.”

 

Critics said the FSA was so out of it that anyone with post-secondary training who had obtained some type of accreditation could recruit students paying substantial tuition with federal student loans.

 

The result was that institutions “with little or no vocational or educational value,” according to the U.S. Department of Education, were, in effect, subsidized with federal student aid.

 

Criticism continued during the Obama administration, with a report from the Senate Committee on Health, Education, Labor and Pensions claiming few of the for-profit colleges it investigated were providing a good education for the amount of federal student aid they received. Very little of the money they pull in is spent on instruction—most of it goes into executive salaries, staffing, marketing and recruiting.

 

The report also said large numbers of students at for-profits failed to complete their programs, citing a 64% dropout rate among those seeking associate degrees.

Trade School Bent Rules to Get Aid, Official Say (by Karen W. Arenson, New York Times)

For-Profit Colleges Thrashed In Congressional Report (by James Marshall Crotty, Forbes)

Congressional Report Slams For-Profit Colleges (by Paul Fain, Inside Higher Ed)

For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success (Senate Committee on Health, Education, Labor and Pensions)

 

For-Profit Schools Take Advantage of GIs

For-profit schools have been criticized for targeting veterans with misleading offers of higher education, only to leave them disappointed and in some cases feeling ripped off.

 

Frontline dedicated one show to how for-profits were aggressively going after GIs, including those suffering from post-traumatic stress disorder (PTSD).

 

All of the veterans interviewed by Frontline expressed displeasure with their for-profit education. Such schools specifically went after PTSD veterans, claiming their distance-learning programs were ideal for those unable to endure in-class education.

 

Some former Marines told how they couldn’t even remember some of the classes they had signed up for, which wasn’t a concern for the school as long as it received federal subsidies for the students.

 

Pursuing veterans had become a profitable enterprise for these institutions. From 2006 to 2010, the money received in military education benefits by just 20 for-profit companies jumped from $66.6 million to $521.2 million.

Alleged Mistreatment Of Vets By For-Profit Colleges (by James Marshall Crotty, Forbes)

Educating Sergeant Pantzke (Frontline)

Brain-Injured Marines and For-Profit Colleges (by Jean Braucher, Credit Slips)

For-Profit Colleges, Vulnerable G.I.’s (by Hollister Petraeus, New York Times)

How Pricey For-Profit Colleges Target Vets' GI Bill Money (by Adam Weinstein, Mother Jones)

 

Aid Elimination Penalty for Drug Use Causes Controversy

A Democratic lawmaker tried in 2009 to revoke a provision in federal law that prohibits students convicted of drug possession from receiving federal student loans.

 

Representative George Miller (D-California) introduced the provision into the Student Aid and Fiscal Responsibility Act of 2009 that would reverse a 1998 amendment making students convicted of drug possession ineligible to collect federal funding unless they completed a rehab program and passed two unannounced drug tests. Students convicted of selling drugs would continue to be prohibited from receiving financial aid under the amendment.

 

Kris Krane, executive director of Students for Sensible Drug Policy, said current law represented “an unfair penalty.”

 

“It’s double jeopardy, and it impacts students of color and low income students predominantly,” she told Fox News. “It actually creates more drug abuse, because we know that the best way to prevent drug abuse later on in life is to get a college degree. That opens opportunities for economic advancement later on in life.”

 

Some law enforcement groups opposed the change, saying the current policy deterred students from using drugs. Opposition to the amendment prevented it from remaining in the final bill when the House adopted it.

Drug Offenders To Get Federal Student Aid Under New Bill (by Maxim Lott, Fox News)

Student Drug Policy Reform Dropped From Health Bill (by Jane Teixeira, The California Aggie)

Drug Busts Hit Students Hard (WI Druggies Lose Financial Aid) (by Megan Doughty, Madison.com)

 

Theresa Shaw Controversy

The George W. Bush administration’s head of the FSA office resigned in 2007 following accusations that the FSA had been lax in policing the $85 billion student loan industry.

 

Theresa Shaw’s departure from the FSA was unrelated to reports that lenders had leveraged universities and financial aid officers with favors to win more business, according to officials in the Department of Education.

 

It was also reported that Shaw had received $250,000 in bonuses, which alarmed Democratic lawmakers in Congress.

 

Andrew Cuomo, attorney general of New York State, claimed the Education Department had been “asleep at the switch” in regulating the practices of lenders, prompting him to launch his own investigation.

 

Shaw was appointed in 2002 by Education Secretary Rod Paige after 22 years in industry, mostly at Sallie Mae, the largest student lender.

Federal Student Loan Official Is Resigning (by Jonathan Glater, New York Times)

Audit Report (U.S. Department of Education)

Dems Question $250,000 in Bonuses for Gov Official (by Justin Rood, ABC News)

 

Overpayments to Lenders

The inspector general (IG) for the U.S. Department of Education reported in 2007 that the FSA had overpaid lenders hundreds of millions of dollars in student loans.

 

One lender, Nebraska-based Nelnet, was overpaid $278 million from 2003 to 2005, according to the IG report.

 

Two other lenders, the New Hampshire Higher Education Loan Corp. and the Arkansas Student Loan Authority, voluntarily returned millions of dollars in subsidy payments after discovering overpayments by the government.

 

The Washington Post said its own analysis of FSA records indicated that potential overpayments to lenders from 2003 to 2006 could total $300 million.

Confusion Cited in Overpayments To Student Lenders (by Amit R. Paley, Washington Post)

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Suggested Reforms:

Put Banks Back in Charge of Student Aid

Representative Paul Ryan (R-Wisconsin) proposed while campaigning as Mitt Romney’s running mate in 2012 to make several reforms to Federal Student Aid (FSA), including a rollback of changes under President Barack Obama that cut banks out of the student loan process.

 

Prior to the passage of the Student Aid and Fiscal Responsibility Act (SAFRA), federally backed student loans were administered through a public-private partnership in which the federal government subsidized and guaranteed student loans provided by private lenders.

 

This system allowed banks to receive taxpayer money as an incentive to keep interest rates low. The government also guaranteed that it would pay back up to 97% of the loan principal if the borrowers defaulted, which cut out virtually all risk for banks.

 

“That proved an inefficient way to provide loans, but a great way to prop up banks and waste a bunch of money,” Tim Price wrote at Salon.

 

If Ryan and Romney had had their way, the government would have returned to this system so banks could again profit from student loan lending.

 

Ryan also advocated for changes to the Pell Grant program. The Republican congressman wanted students who qualify for just the minimum award amount, part-time students and those enrolled in summer classes to be ineligible for Pell grants.

Ryan, GOP’s Likely VP Nominee, Plans To Reform Federal Student Aid (by James Toliver, Jambar.com)

GOP’s Newest Attack On Student Loans (by Tim Price, Salon)

 

Obama’s 2012 Plans for Reform of Financial Student Aid

President Barack Obama proposed in 2012 to make several reforms impacting federal student aid for those in college.

 

During his State of the Union address, Obama talked of reforms that would shift aid away from colleges that fail to keep tuition costs down, and toward those colleges and universities that work to keep tuition affordable, provide good value, and serve needy students.

 

Later in the year Obama called for increasing the Pell Grant cap, doubling the number of work-study positions available, and making other changes to federal student-loan programs.

 

Under Obama’s budget plan, the federal Pell Grant limit would increase from $5,550 to $5,635, with an additional 110,000 work-study jobs over five years.

 

The president’s proposal also sought to cap the federal Stafford Loan interest rate at 3.4% for one more year (interest rates were set to jump to 6.8% in July 2012).

 

Furthermore, funding for Perkins Loans would also increase from $1 billion to $8.5 billion under the president’s plan.

FACT SHEET: President Obama’s Blueprint for Keeping College Affordable and Within Reach for All Americans (White House)

Higher Ed Experts Applaud Obama's Student Aid Proposals (by Chastity Dillard, Daily Iowan)

Obama Speeds Up Aid for College Students: How Will It Help You? (by Huma Khan, ABC News)

 

Past Student Aid Reform Ideas

Seemingly a year doesn’t go by without at least one education group offering up its suggestions for changing the way the federal government supports college education.

 

In 2008, the Rethinking Student Aid Study Group, made up of college presidents, economists, and other financial aid experts, called for allowing parents and students to submit their tax information in a simpler way, instead of filling out the 145-question federal financial aid application.

 

In addition, the group said Congress should consolidate the many small grants and loan programs into one program, which would save the government and colleges millions of dollars in administrative costs and make it easier for students to understand.

 

In 2009, The Friday the 13th Group, composed of financial aid administrators from about 50 schools, issued a report with several recommendations:

 

One called for establishing 100% federal funding for all federal student loans and simplifying the financial aid system for students by eliminating several federal grants, such as the Supplemental Educational Opportunity Grant (SEOG) and redirecting those financial resources toward need-based financial aid by expanding funding for the Pell Grant and Federal Work Study programs.

 

In 2010, the Center for College Affordability and Productivity issued its own report that echoed some of the previous changes mentioned. These included reducing the number of federal programs, simplifying forms, reintroducing private competitive servicing of student loans, and using a voucher system instead of institutional subsidies.

 

Reforming Federal Student Aid Programs (The Friday the 13th Group)

Researchers Offer New Ideas for College Financial Aid Reform (by Kim Clark, U.S. News & World Report)

25 Ways to Reduce the Cost of College (Center for College Affordability and Productivity)

Reforming Student Aid (Rethinking Student Aid Study Group)

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Former Directors:

William J. Taggart – 2009-2011

On June 1, 2009, U.S. Secretary of Education Arne Duncan appointed William J. Taggart to be the COO of the FSA. He held the post until his resignation on July 15, 2011.

 

Born in December 1961, Taggart earned a Bachelor’s degree in Business Administration from Howard University in 1984 and an MBA from Harvard Graduate School of Business Administration in 1991.

 

Taggart has spent his entire 24-year career in the for-profit private business sector of the economy, working mainly for large companies in the financial industry. He started his career in 1984 at IBM as a Program Manager, working in Bethesda, Maryland, and at corporate headquarters in Armonk, New York. Taggart left IBM in 1989 to return to school, returning in June 1991 as a Senior Engagement Manager with IBM Consulting Group, where he remained for nearly four years.

 

Relocating to Charlotte, North Carolina, in May 1995, Taggart, as Director of Strategic Support Services, helped to found an internal consulting unit for former banking giant First Union, with whom he remained for four and a half years, when First Union merged with Wachovia. After the merger, Taggart received the title Chief Administrative Officer at Wachovia Insurance Group, where he remained for two years. He then joined Pivot/Info-One, a wholly owned subsidiary of Wachovia Insurance that provides web-based insurance and annuity sales information products and services. He was co-President from March 2001 through July 2003. Taggart then returned to Wachovia proper, as Chief Operating Officer of Corporate and Investment Banking at Wachovia Securities, LLC, where he stayed for nearly five years, from August 2003 to June 2008. After thirteen years with Wachovia, Taggart finally left to found his own company, Veritas One Consulting, LLC, a Charlotte-based consulting firm focusing on healthcare, financial services and government.

 

A Democrat, Taggart has donated $6,800 to Democratic candidates between 1996 and 2008, including $4,600 to the 2008 presidential campaign of Barack Obama.

 

James Manning, Acting (Acting) – 2008-2009

 

Lawrence Warder (Acting) – 2007-2008

Warder Exits Education Dept.; Leaves FSA in Hands of Manning (Department of Education press release)

 

Theresa S. Shaw – 2002-2007

Theresa (“Terri”) S. Shaw was appointed COO in September 2002 and announced her resignation May 9, 2007. Coming to Federal Student Aid from a 20-year career in the student loan industry, including recent stints as Chief Information Officer for Sallie Mae, and Executive Vice President and Chief Operating Officer of eNumerate Solutions, Inc., Shaw came under scrutiny when overpayments to private lenders and lender payments to universities referring students for loans were exposed in early 2007. However, the Secretary of Education claimed her resignation was unrelated to these controversies. She also received negative publicity in 2004 over the issue of bonuses received by 75% of Department of Education staff and totaling $5.7 million, the largest of which, $71,500, was to Shaw herself.

Federal Student Loan Official is Resigning (by Jonathan D. Glater, New York Times)

 

Greg Woods - 1998-2002

Biography (Department of Education)

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Comments

Nona Kyle 1 year ago
Student Loan practices are creating a new class of slaves. Paying off a college loan to age 85 should not be possible. Proprietary colleges--no good. Student loan scams--prevalent. At age 80 I get a call every week from National Student Loan group wanting to help me get a better rate on my loan. I do not have a loan. Have never had one. Worked my way through college and graduate in 1959. WHO ARE THESE FREAKING SCAM ARTISTS? WHY can't the scamming be stopped?
Lisa Vandenberg 1 year ago
My husband is paying back a student loan did all paper work and for 3 months the government took 154.oo from his social security and 36.oo and wyndam collection agency 36.00 he has talked to every one about this and all he gets is the runaround nice job our goverment is doing trying to make us homeless

Leave a comment

Founded: 1998 as currently organized. Most programs began in 1965 under the now defunct Department of Health, Education and Welfare and were transferred to the Department of Education in 1980.
Annual Budget: $1.126 billion (FY 2013 Request). With this administrative budget, FSA estimates that it will provide $149 billion in assistance to students, which includes $121 billion in new loans and $28 billion in consolidations of previously existing loans.
Employees: 1,200 (FY 2012)
Official Website: http://studentaid.ed.gov/
Federal Student Aid (FSA)
Runcie, James
Previous Chief Operating Officer

James W. Runcie was appointed to lead the Office of Federal Student Aid (FSA) on September 15, 2011, and reappointed to the post December 23, 2015. Federal Student Aid, part of the U.S. Department of Education, provides more than $150 billion in federal grants, loans, and work-study funds each year to more than 13 million students paying for college or career school. These loans are issued either directly from the federal government or as federally guaranteed private loans.

 

Runcie was born in Jamaica, son of a sugar cane farmer, and moved with his family to New York when he was four years old. He attended Roosevelt High School in Hyde Park, New York, where he starred as a basketball player, graduating in 1981. He initially played for the University of Virginia, but transferred to Holy Cross in Worcester, Massachusetts, the following year. There he was involved in an incident with racial overtones. In December 1984, Runcie was punched during a practice by a white player. As a result, Runcie and three other black players walked off the team. One rejoined the team but the others did not. At the time, 1.7% of the Holy Cross student body was African-American. Years later, Runcie was a leading scorer in New York’s Lawyer’s Basketball League.

 

Runcie earned a bachelor’s degree in mathematics from Holy Cross in 1985, and an MBA from Harvard in 1991.

 

Runcie’s career began in the business world, not education. He worked for Xerox, and then in 1991 the investment bank Donaldson, Lufkin & Jenrette, becoming a senior vice president. He moved to Banc of America Securities as a managing director in 2000, and then joined UBS Investment Bank in 2002, where he was co-head of Equity Corporate Finance.

 

Runcie joined the Federal Student Aid program in September 2009, first as an adviser, and then the following year as deputy chief operating officer. In May 2011, he was promoted to acting CEO.

 

Shortly after Runcie was named to officially lead the agency in September 2011, FSA suffered a brief data glitch that allowed users of its website to see others’ financial data for about seven minutes.

 

In November 2015, the Government Accountability Office criticized FSA for not doing enough to stop student aid fraud, particularly at for-profit colleges. The Consumer Financial Protection Bureau also found that borrowers were mistreated by private financial institutions that had been overseen by FSA. One company, Navient, was accused by federal prosecutors of breaking the law by overcharging active-duty military personnel for student loans. Navient had been cleared by FSA after what the Education Department’s inspector general later found to be a flawed investigation.

 

Runcie oversaw the important move from bank-based student loans to those held by the federal government, which saved taxpayers billions of dollars. During his tenure, FSA has increased the direct loan portfolio of federal student loans from 9.2 million recipients representing $155 billion to 32 million recipients representing $1 trillion.

 

Runcie’s brother, Robert, is also involved in education as the superintendent of the Broward County (Florida) School District.

-David Wallechinsky

 

To Learn More:

Official Biography

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Taggart, William
Former Chief Operating Officer

On June 1, 2009, U.S. Secretary of Education Arne Duncan appointed William J. Taggart to be chief operating officer (COO) of the department's Federal Student Aid office (FSA). FSA is a Performance Based Organization (PBO), which is intended to create incentives for high performance and accountability for results, while allowing more flexibility to promote innovation and increased efficiency. 

 
Born in December 1961, Taggart earned a Bachelor’s degree in Business Administration from Howard University in 1984 and an MBA from Harvard Graduate School of Business Administration in 1991. 
 
Taggart has spent his entire 24 year career in the for-profit private business sector of the economy, working mainly for large companies in the financial industry. He started his career in 1984 at IBM as a Program Manager, working in Bethesda, Maryland, and at corporate headquarters in Armonk, New York. Taggart left IBM in 1989 to return to school, returning in June 1991 as a Senior Engagement Manager with IBM Consulting Group, where he remained for nearly four years. 
 
Relocating to Charlotte, North Carolina, in May 1995, Taggart, as Director of Strategic Support Services, helped to found an internal consulting unit for former banking giant First Union, with whom he remained for four and a half years, when First Union merged with Wachovia. After the merger, Taggart received the title Chief Administrative Officer at Wachovia Insurance Group, where he remained for two years. He then joined Pivot/Info-One, a wholly owned subsidiary of Wachovia Insurance that provides web-based insurance and annuity sales information products and services. He was co-President from March 2001 through July 2003. Taggart then returned to Wachovia proper, as Chief Operating Officer of Corporate and Investment Banking at Wachovia Securities, LLC, where he stayed for nearly five years, from August 2003 to June 2008. After thirteen years with Wachovia, Taggart finally left to found his own company, Veritas One Consulting, LLC, a Charlotte-based consulting firm focusing on healthcare, financial services and government. 
 
Taggart will certainly have his work cut out for him. President Obama’s proposed 2010 budget would significantly expand federal student aid programs.  Under the proposal, the Department of Education would administer more than $129 billion in new grants, loans, and work-study assistance in 2010—a 32 percent increase over the amount available in 2008—to help more than 14 million students and their families pay for college.  A major initiative of the plan, fiercely opposed by the banking industry, is for all new parent and student loans to be issued directly from the government rather than through private lenders.  This change would save taxpayers an estimated $4 billion a year that will be directed to Federal Pell Grants and other aid for needy students.
 
A Democrat, Taggart has donated $6,800 to Democratic candidates since 1996, including $4,600 to the presidential campaign of Barack Obama. 
 
Obama Student Loan Plan Wins Support in House (by David Herszenhorn, New York Times)
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